Churning in the world dairy industry
Two recent events demonstrate the oligopoly gin game at work, as companies strive to get the best hand and take advantage of others' weakness as they occur.
First, Nestle just announced it would sell some of its Turkish dairy operations to rival Danone. Here's the Wall Street Journal report (12/18/2003):
Nestle did not reveal the value of the deal, which will give Danone control of the Swiss company's chilled dairy and long-life milk products, the Mis milk brand and a factory. Nestle will maintain control of its key Nesquik brand of flavored milk and Cocuk milk for youngsters, both of which Danone will manufacture on Nestle's behalf.
According the article, Nestle will concentrate on other core brands including "confectionery, culinary, infant nutrition, breakfast cereals, coffee and water." In other words, Nestle makes a discard and competitor Danone picks it up. Both companies see an advantage in a friendly trade-off on assets that they see as core to their mission.
Second, there are the financial scandals at Italian dairy giant Parmalat. That company's woes are seen as opportunity for Nestle and Danone. According to the WSJ (12/23/2003),
In the dairy sector, Parmalat's main competitors are local cooperatives around the world in addition to global players such as Nestle and Danone. Parmalat has been pouring money into R&D in order to come up with healthier products such as lactose-free milks, whose margins can be double those of standard milks. In this it faces tough competition in Nestle, which has a large business in condensed and powdered milks and which has been investing in innovations such as vitamin-enriched versions for the developing world. In Brazil, Canada and Italy, Parmalat competes head-to-head in yogurts with Danone, which also has been investing heavily in product innovations such as special strains of bacteria meant to boost the immune system.
Again, here's an opportunity for these friendly enemies, French Danone and Swiss Nestle, to gain market share and carve up markets that fit their specialties. Parmalat may survive, but it looks likely to sell off or abandon many of its non-Italian operations. Its loss of competitive position is not the result of any act by its rivals, but they are certainly poised to take advantage of it. That can't help but tighten the world dairy oligopoly.
